Solar & Wind Wrap-up

Following an exciting and fast-paced week down in Phoenix at the Infocast Solar + Wind Finance & Investment Summit, we head back home with a few key themes resonated by panels and within discussions throughout the week.

Developers and offtakers are developing an appetite for risk

The days of busbar PPAs with corporate offtakers are gone, but parties have become wiser to the risks inherent in hub-settled PPAs. With new projects still struggling to come online fast enough to serve the demand for corporate offtake, the balance of power in negotiations has swung back in favor of developers. This has allowed for more creative offtake structures that limit the risk to the asset owner. Not only has this resulted in contractual stipulations to limit risk, but has also seen portions of projects taken merchant with parties sharing in the upside.

Project developers also spoke on the impact of new solar projects with Production Tax Credits (PTCs) competing in the stack with solar projects without PTCs. We have seen increased adoption of creative offer strategies amongst our clients to capture incremental value over immediately surrounding resources. Developers also spoke to the onset of merchant risk as well as expiring PTCs lending to the use of more creative offer strategies. At CWP Energy Solutions, our active asset management strategies incorporate sophisticated offer strategies that augment DA/RT Optimization and mitigate curtailment.

Tax credit transferability opens the door for new players in the Tax Equity market

Though many are still awaiting guidance to fully understand the transferability of tax credits, optimism presides regarding the positive effect on the renewable development space. Notably, market participants anticipate the introduction of new tax equity players that will allow for more project development, as well as an increased appetite for new/differing deal structures that have otherwise been frowned upon by existing tax equity.

The introduction of tax credit transferability also lends to improved liquidity in tax equity value. Look to see asset owners and offtakers alike bring more creative structuring to agreements, utilizing market instruments to stabilize generated PTC and REC volumes.

Transmission build remains daunting and unlikely to resolve issues in the near future

While renewable developers and offtakers alike certainly stand to benefit from increased transmission, the build out in renewable projects is very likely to exceed the rate of transmission expansion for the foreseeable future. As mentioned above, counterparties are more willing to share risk to form partnerships as opposed to stake the profitability for one party over the other on the chance of a new transmission build.

The IRS is soliciting external guidance, to issue their own guidance

The Internal Revenue Service (IRS) attended their first major renewable energy event to get a “lay of the land” in what is otherwise a brand-new industry from their perspective. Representatives from the IRS made very clear that the agency has very limited subject matter expertise and is turning to the renewable energy industry itself in order to best form their guidance on how to interpret and abide by the provisions within the Inflation Reduction Act (IRA). With that in mind, we anticipate that the release of guidance from the IRS is still likely a way off, and as a result the impacts from the IRA are likely to be limited in the interim as market participants are careful not to disqualify themselves for any particular benefit.

As we head into 2023 one thing is abundantly clear – the renewable energy industry continues to grow in sophistication and its tolerance for risk as it adapts to the headwinds sent its way. At CWP Energy Solutions, we look to aid renewable developers and asset owners in managing their risks during this shift in the industry. If you did not get a chance to chat with us in Phoenix, be sure to reach out!